Japan's government said Thursday it was worried about "one-sided" and "rapid" fluctuations of the yen, as speculation grows that Tokyo might intervene to prop up the beleaguered currency.
The yen has fallen to its lowest level against the dollar since January on concerns about a purported stimulus package worth at least 20 trillion yen ($130 billion) that was expected on Friday.
"We are currently observing one-sided and rapid movements in the foreign exchange market, and we are concerned about it," top government spokesman Minoru Kihara told reporters.
"The government is closely watching excessive fluctuations and disorderly movements, including speculative movements in the foreign exchange market, with a high sense of vigilance," he said.
The exchange rate is slipping "with the kind of slow, ominous momentum that policymakers in Tokyo pretend to tolerate but absolutely do not welcome", said Stephen Innes at SPI Asset Management.
"We're less than a figure from the zip code where 'verbal vigilance' turns into the unmistakable thump of real intervention orders," he said.
After a string of poor election results, new Prime Minister Sanae Takaichi's government is putting together a massive supplementary budget to help Japanese households.
Her cabinet was expected to sign off on the stimulus -- the third in three years -- on Friday, local media said, putting its size at 21.3 trillion yen, including 2.7 trillion yen in tax cuts.
As well as weakening the yen, concerns that the stimulus will add to Japan's already colossal debt pile have also pushed yields on government bonds to record highs this week.
Reports also say that Takaichi -- an acolyte of big-spending former premier Shinzo Abe -- will push back the target date for achieving a primary budget surplus.
"If the government excessively expands the scale of economic measures... concerns about fiscal deterioration could lead to a rise in long-term interest rates (yields)," Takahide Kiuchi, executive economist of Nomura Research Institute, said this week.
"Additionally, a decline in confidence in fiscal and monetary policy could result in a weaker yen, which would drive up prices," offsetting the effects of stimulus, he said.
Kihara said Takaichi's government "will strategically implement fiscal measures to build a strong economy and enhance economic growth rates."
"Through this path, we aim to reduce the government debt-to-GDP ratio to achieve fiscal sustainability, and ensure market confidence," Kihara said.
Meanwhile, a member of a key panel advising Takaichi said this week that the Bank of Japan is unlikely to raise its benchmark interest rate before March.
"The starting point is fiscal policy," Goushi Kataoka told Bloomberg News.
If the stimulus package is implemented effectively, domestic demand could expand as early as the first quarter of next year, and "depending on the situation, conditions could be in place for a rate hike as soon as March," said Kataoka.
